Dairy Market Headlines
- GDT Rises 1.7%
- EU Milk Production Fell 1.2% YOY in July
- U.S. Milk Keeps Flowing with 1.9% YOY in August
- Record Level Corn and Soy Crops Bring Relief to Most Dairy Farmers
- Rising Whey Values – First in EU, U.S. to Follow
GDT Rises 1.7%
- September 20th Global Dairy Trade (GDT) rose 1.7% higher than the previous event. Many view this as a slowdown but not a stop to the climbing dairy prices. Out of all the products, Fat stayed strong while Whole Milk Powder remained steady.
- Fats’ continued rise is attributed to supplies tightening in the EU and U.S. In September 2015 there was a $1.50 gap that favored U.S. Butterfat to German Butterfat. As of early September, German Butterfat is at a $0.07 premium to U.S. product. This could lead to the U.S. being able to export more butter and reduce imports, which would start to decrease U.S.’s record stocks.
- Although the GDT prices increased, 80% Butterfat basis GDT prices are still well below U.S. and EU spot butter prices.
EU Milk Production Fell 1.2% YOY in July
- July output was down 1.2% YOY. This marks two consecutive EU milk decreases reported by Eurostat.
- 10 of the 28 members reported stronger YOY output but the bigger milk producing nations continue to slide. Germany reported a 0.9% decrease and France was only up 0.2%. UK, Poland, and Italy witnessed back to back lower milk collections due to lower milk prices and higher cow culling rates.
- Smaller EU countries such as Ireland and the Netherlands are still planning large herd expansion. These two countries are accredited with more than 70% of growth in EU milk output in 2016. However, the announcement by Dutch Dairy powerhouse FrieslandCampina, that they will cut milk payouts on October 1st (by 10 euro cents per kilo for 6 months), as well as the looming Dutch phosphate level decrease mandate could slow the increasing flow of Dutch milk.
- In the week ending August 7th, butter prices rose 4.3% from the prior week, which could be attributed to slower EU milk output.
- More recent weekly data has indicated early September milk numbers in the UK, Germany, and French collection are down substantially. August Eurostat milk collection data has yet to be published.
- Eurostat shows that EU cow and heifer culling for the 1st half of 2016 are up YOY.
- EU milk forecast has been adjusted further downward by the European Commission. The forecast was up 1.4% in 2016 and has now been changed to 0.9%.
U.S. Milk Keeps Flowing with 1.9% YOY August
- U.S. milk production is up 1.9% from YOY in August at $17.7 billion pounds.
- Texas is up 11%, Colorado is up 6.9%, Michigan is up 6.6%, Idaho is up 4.9%, New York is up 3.2%, and Wisconsin is up 2.4%.
- California is down 1.7%, Utah is down 3.7%, Virginia is down 4.1%, and Florida is down 7.2%.
Record Level Corn and Soy Crops Bring Relief to Most Dairy Farmers
- The USDA World Agricultural Supply and Demand Estimates (WASDE) report projects record highs in 2016-2017 global corn stocks ($2.384 billion bushels). This figure is slightly smaller than their August estimate, but remains the largest total since 1988. For dairy farmers who buy their corn, this has helped margins. For dairy farmers that grow their own corn, it is below the average cost of production.
- With record high acreage and record large yields, U.S. soybean crops should be up about 7% this year. This has brought relief to dairy producers’ oilseed feed cost, and has helped stabilize margins.
- If South American soybean crops disappoint, there could be upcoming volatility in soybean prices.
Rising Whey Values – First in EU, U.S. to Follow
- German dry whey prices ranged from 47.25 cents to 50.25 cents per pound for the first two weeks of September. Higher temps, as well as less milk going to cheese, have influenced this jump in German whey prices. July’s price was 33 cents/lb, which is quite a jump in such a short time period.
- U.S. dry whey prices have followed suit to their German counterparts, though a much lesser extent. USDA Dairy Market news reported that prices in Central U.S. mostly range at 27.5 cents to 33.5 cents and Western prices range mostly at 30 cents to 34.5 cents. There have been trades above these ranges as high as 40 cents. Lower stocks and high Chinese demand are contributing to rising U.S. prices.
- China continues to pull impressively large quantities of whey powders. Through July 2016 YOY, imports are 12% higher with little signs of slowing.
- One would think that with increasing dry whey prices, processors that can switch between WPC 80/WPI and dry whey would switch to dry whey. This is not the case. Prices and demand for WPC 80/WPI and permeate/lactose have continued to trend upward.
- China’s pork demand has helped find homes for U.S. lactose and permeate powders going into hog/piglet feed. In the charts below, you can see both lactose production and pricing have been increasing in the U.S. over the last 4 months.